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Tonight I’m getting message after message that friend after
friend has joined Highlight (the photo is of Paul Davison showing it
off to some of its first users back in December on the day it
launched into a closed beta).

What is it? It’s one of a new band of companies trying to own the
“real time people discovery space.”

Crunchbase says Highlight is a mobile ambient awareness
app. I believe we’ll see lots more of these kinds of
apps over the next few years and, even, Google is rumored to be building new kind of
wearable monitors to use apps like these.

Just for completeness, the competitors are Glancee, Kismet, Sonar, and Ban.jo with more coming this
week (by the end of the week I’ll write up a more complete
analysis of the competitors, since most of these companies,
including Highlight, will ship major updates to their apps this
week — I’m sure I won’t be the only one, either, given the
attention these things are getting).

So, let’s dig into the hype and anti-hype and see if Ron Conway
and Mike Arrington are going to either lose all their money or
have just backed the next big thing?

There are a bunch of different ways to look at this:

1. Virality coefficient. How often is the user
base doubling? How likely is it to keep doubling? (I was at the
first party that Highlight was shown off at, back in December. I
saw it go through almost an entire party in just an hour the
virality coefficient was so high. It made such an impression on
me that I even shot a photo of Paul showing it
off.
2. Competitive pressures. Will a competitor kick
their behind unexpectedly? Will philosophical choices its
founders make derail it the way Gowalla was derailed by choices its founders
made?) How is it differentiated?
3. Market window optimization. In this case,
this kind of app will only do well in three places: San
Francisco, New York, and SXSW. That means that if they don’t rock
and roll at SXSW and their competitors do they will be at a HUGE
disadvantage. Brian Solis (analyst and social media guru at
Altimeter
Group) just told me he’s picked Highlight as the app he’s
going to use at SXSW. Many others are saying the same
thing.
4. Haters. All good products have haters.
Remember when Woz and Jobs started the PC business? Their bosses
thought they were nuts. Even one of their co-founders thought
they were nuts (he quit Apple after a few days and sold his share for a
very small amount of money). Every good consumer technology has
haters. Every single one. It’s a precondition.
5. Smartness of entrepreneur. I’ve spent time
with almost all the entrepreneurs who are doing companies in this
space and Paul has made a huge impression on me. So much so that
I cancelled one evening of parties just to spend four hours with
him at his offices in San Francisco one evening to get a better
sense of what he is doing that the other entrepreneurs aren’t.
This is an intangible that’s hard to describe, but I’ll try to in
the rest of this blog.

I’ve been using these apps for a while now, and here’s how they
will be judged. In other words, here’s how we’ll be able to track
if Arrington and Conway screwed up by investing in Highlight.
Others will announce funding this week, I’m hearing, by other
investors. Two $64,000 questions for the investors:

1. Will this category keep doubling in users? I think it will.
I’ll try to explain why later.
2. Will Highlight (or one of its competitors) dominate in such a
way that it gets rid of all of the other competitors? I think so,
more later as we dive into what I’m already seeing happen.

Some things. You might say it’s too early for me to call
the game. I don’t think that’s the case at all. I’ve
watched consumer apps on the Internet compete for quite some time
(Israeli investor Yossi Vardi says I was the first person to have
a website about ICQ back in 1996, for instance, and that was the
hottest new consumer app of that year. It eventually sold to
AOL for about $400 million — it had
competitors, including one from Microsoft but because it was doubling in users
every few days the others could never catch up. I predict that’s
already happening in Highlight’s case).

Have you ever thought about a doubling penny. You know, today you
have one penny, tomorrow, two, the day after that, four, and so
on and so forth? I have. It’s how these things work. The first
app to double 27 times wins the lottery. Everyone after that will
seem lame in comparison. That’s true whether you are looking at
Twitter (it had competitors), Facebook (it had competitors), Pinterest (it
has competitors already), GroupOn (it has dozens, if not
hundreds, of competitors). The first one to double and get into
that “exponential growth area” wins. Period. It’s really hard to
overtake the market leader once it has even a few “doubles” of
lead.

It is especially true when you consider that users aren’t all the
same. For instance, once you get someone like Dave McClure to join your service (he joined
Highlight today) that matters a lot more than if someone who
isn’t a well connected tech influencer in Silicon Valley joins).
Just the facts of life. Twitter took off after Leo Laporte started talking about it (he’s on
Glancee, by the way, which I noticed when I drove by Leo’s house
in Petaluma last night — we were attending my son’s play at
Petaluma High School. That makes sense cause Glancee is on
Android and Leo is an Android fan. More
on platform choices later, that could be one way that Arrington
and Conway have screwed up).

So, let’s take on the five ways these apps will be judged
by the marketplace.

Virality. I’m watching all of these apps in a
very specific market: San Francisco. In my experience if you do
not win San Francisco’s geeks you won’t win the world-wide
marketplace. This is true of nearly every interesting consumer
app that’s come along lately, and explains why even Spotify, which was started in Europe, handed
out beta codes to lots of San Francisco insiders nearly two years
before it launched in the United States. In this case Highlight
is winning. It is spreading faster, and quicker, through the
influential San Francisco crowd than any of its competitors are.
Now, I’m sure that Banjo and Sonar will cry that I’m forgetting about them.
No, I’m not. Those two aren’t really the same kind of app that
Glancee and Highlight are and, anyway, those two are NOT getting
the insiders excited and are NOT seeing growth that Highlight is
amongst the insiders I track. They do have more users (about
600,000 vs. about 20,000) but Highlight is doubling a lot faster
and is getting everyone energized. There’s a whole bunch of
reasons for that that I’ll go into in a sec.

Competition. Here I look at the philosphy of
each product. Sonar, for instance, shows you a list of every
place near you and shows you how many people have checked in on
Foursquare at each place. Useful, but not
nearly as useful as Highlight. The reason I called Brian Solis
tonight, for instance, is because one of his checkins were shown
on both Sonar and Banjo. The problem was that he was back home.
This does not happen on Highlight since Highlight ONLY shows me
when someone is within 50 yards of me and only in real time.
Also, Highlight shows a little map of where I was when I crossed
paths with someone, which again verifies what time and what place
we were at. This is a HUGE differentiator. Compare to Kismet and
Glancee. They feel that people will be freaked out by seeing
where they met someone. In my experience they have made the wrong
philosophical choice in order to cowtow to perceived market
“freakedness.” Here’s the thing these entrepreneurs didn’t count
on: users will change their behavior if they are given
something in return. They will, gasp, even choose to do
something “freaky.”

In Kismet, and Banjo’s case, they show people who have explicitly
checked in, either on their service, or on Foursquare, in Banjo’s
case. But this is actually more stalkerish than the “scarier”
Highlight. Think about it. If you are a woman and are scared
about being stalked by someone, Highlight only shows you to
people who are already within 50 yards. The others show you to
people miles away who might all of a sudden start “following” you
online. It’s amazing how easy it is, by the way, to follow
someone and figure out where they are by what they Tweet,
Foursquare, Facebook, or put on services like Foodspotting or
Yelp.

Highlight, even though it “seems” more “freaky” when you first
hear about it, is the least freaky of the group. After spending
time with Paul Davison, I got why: he spent a lot of time making
sure that women feel comfortable on the service. Indeed I’m seeing quite a good percentage of
women on the service and the ones I’ve asked say they enjoy it so
far. Techcrunch’s Alexia Tsotsis backs this up, too, by
saying “I like it” even while writing some feedback about how
it could be made less freaky.

It is my experience that Highlight is beating the competition
EXCEPT in one way: cross platform availability. Android users are
pissed that Highlight isn’t available to them and are pushing
Glancee, which is available on both iOS and Android. The problem for me is that
Glancee is SLOW to startup. On Friday I was out to dinner with
ShowYou’s CEO, Mark Hall. I started both apps up from a cold
start. Highlight started in 1.5 seconds. Glancee took 15 seconds.
This dramatically makes me dislike Glancee. To be fair, though,
Glancee says they are shipping an update that will improve this
tomorrow. I’ll test it out again then.

Glancee, though, doesn’t have the same feed features that
Highlight does (Highlight keeps track of where you met someone,
how often you met them, and WHERE you met them. I believe the
three together put into a feed that you can scroll all the way
back through is a KILLER FEATURE and one that the others are
totally missing).

That said, everything I write tonight about the competition will
probably change this week. At least one competitor is coming out
with a killer feature of its own (I can’t talk or reevaluate the
field until that competitor ships later this week — although I
still believe Highlight will be ahead, even then).

Market window optimization. This one is a tough
one. It means that there’s only a small “window” for competitors
in a new field to launch effectively. Why is that? Because once
networks of people decide to use one app, the competitors will
never be able to “break those users free from the network lockin
effect” and move them somewhere else. We saw this with Twitter.
Lots of other competitors came along, many with better features,
but because the users had decided to use Twitter it just was
impossible to move them all to a new system. This will happen BIG
TIME with this kind of app. Once I start using Highlight, and so
do all my friends, there’s no way I’m going to move somewhere
else unless you also move all my friends first. THAT is a HUGE
amount of lockin and that lockin is happening in a MAJOR way with
Highlight right now, at least amongst the San Francisco tech
crowd. Now, in the past that crowd has predicted mainstream
success later on. If you say it doesn’t matter what the cool kids
in San Francisco have chosen, then you have a HUGE burden of
proof to convince us of your point. Yes, you can point to some
cases where the geeks didn’t matter. Pinterest. GroupOn are two.
But they are hardly the kind of broad-based consumer things that
Highlight and Glancee are. So, you’ll have to work extra hard to
convince me that you can win, say, in Kansas without winning San
Francisco first and that you can keep Kansas from switching.
Remember, people used to say “Orkut is big in Brazil and Facebook
isn’t.” I said that didn’t matter and I was right. Eventually
Facebook got everyone to switch because even Brazilians have
friends other places and the network effect of the rest of the
world was too powerful to resist. Unless you have a firewall like
China and Iran do. I bet that Facebook would take over those two
countries within 18 months too, if the firewalls were removed.

That said, this group of apps will be decided in the next 18
days. Really they will be decided on by Friday and I can now make
a good case that the prize has already been decided. That’s just
the way the world works. It’s also why I say you shouldn’t launch
at SXSW (read my advice on Quora for companies thinking of
doing something so stupid). Highlight and Glancee both were
out in the marketplace weeks ago. They followed my advice and are
the leading ones in this new field because of it. Market windows
are very important to pay attention to. You couldn’t launch a
Windows XP app today, for instance, and
get anyone to care about it. Launch a Windows 8 app, though, and
everyone will check it out. Launch the same app in a year,
though, and it’ll be a lot tougher to get anyone to care. This is
why so many startups, from Flipboard to ShowYou are working long hours to
get their apps ready for the iPad 3 right now and its high resolution
screen. They know that if they are out in the first week after
Wednesday’s Apple announcements that they will get lots of users.
Announce three months from now? No one will care. Market window
optimization is HUGELY important for entrepreneurs. Highlight is
doing the best job here.

Haters? Oh, this whole category has them in
DROVES. It’s actually the strongest evidence that there’s
something to this category. Anytime haters come out of the
woodwork it tells me that I should care about the category. This
has been true for every single big paradigm shift I’ve been alive
for. I still remember my coworkers telling me “why should I use
email?” Or my fellow students at SJSU telling me that mice and
windows were for kids who couldn’t use real computers. Or the
folks who told me that instant messaging would never be used for
“real business.” Or the folks who told me that Twitter was lame.

What should we watch when we see haters? Look for the doubling
effect and look to make sure that the users are staying addicted.
The stats on Highlight are so off the charts that Paul told me he
doesn’t even believe his own server logs. I can tell you why:
people are keeping this app on, and are damn addicted to it. Why?
Because we like finding new things about the people who are
around us.

Now, am I missing anything? Yes, there are lots
of risks. What are they?

1. The doubling effect might stop for some reason. For instance,
let’s say we all get home from SXSW and decide that these apps
are just really lame, well, then the doubling effect will stop.
If this happens you all will make fun of me and then we’ll go on
with our lives looking for the next big consumer trend in tech,
but it’ll mean that Conway and Arrington will be out their
investment. SOme other reasons this might happen? If someone gets
hurt because of these apps. If legislation gets passed that
prevents these apps from working. If Facebook or Google start to
really compete with these apps (I don’t believe they can, because
their users won’t trust them with this kind of passive-sharing of
location, at least not immediately. Keep an eye on Facebook’s
Open Graph set of technologies, though, and they are the biggest
competitor here. Zuckerberg has proven he’ll do things that freak
out his users, as long as he sees the data that they will
eventually be addicted anyway).

2. That these apps might get popular but might not be
monetizable. Just because something is popular doesn’t mean that
you can sell ads on it. Look at Chatroulette. Very popular but now doesn’t
matter. Why? It had penises on it and advertisers stayed away.

3. Something even cooler and better might come along. Google is
working on some glasses that will show stuff in real time about
the world around you. If Google got very aggressive with this
kind of stuff it might do something that is very popular and
takes the oxygen away from these apps.

4. The category could get bought and shut down by competitors.
Facebook, after its IPO, might buy these.

5. The “host” (in this case, Facebook, which Highlight and
Glancee rely on) might shut down this category due to some reason
like regulation or PR pressure.

6. I might be reading the signals wrong. Maybe San Francisco
really isn’t in charge of the consumer world anymore. If that’s
the case, maybe this whole category doesn’t matter the way I
think it does (and the way others think it does). That said, I’m
seeing enough tech passionates around the world agreeing with me
that I don’t think I’m reading the signals wrong.

Anyway, add all this together and I’ve come to the conclusion
that Arrington and Conway have made a smart investment. It’ll be
interesting to see just how fast this category of services grows.
I predict that a company in this field will be a
multi-billion-dollar company in market cap within four years. I’m
betting it’s Highlight, but who knows? That’s what makes this
industry fun, the whole thing could change by Friday and probably
will.

By the way, hear about the two best companies so far in this
field from the execs themselves: